Whether working with a petitioner (initiating the divorce) or a respondent (responding to the divorce), CPAs can guide clients through asset division, tax implications and long-term financial planning.

CPA STRATEGIES FOR DIVORCE PLANNING

Pre-divorce financial assessment:
For petitioners who have had time to prepare, CPAs should conduct a thorough financial assessment. This process includes identifying and valuing assets, debts, income and expenses. Having a clear financial picture enables clients to understand their position and be better prepared for negotiation or litigation. For instance, a retirement account accumulated before marriage may be classified as separate property, preventing unnecessary disputes during asset division.

Post-divorce budget planning:
Divorce often results in a shift from a dual-income household to a single income one. CPAs can help clients create realistic budgets to cover new expenses, such as separate housing, child support and healthcare. Proper budgeting ensures financial stability after the divorce, reducing the likelihood of future financial distress.

Tax implications of alimony and asset division:
The 2017 Tax Cuts and Jobs Act eliminated the tax deductibility of alimony for divorces finalized after 2018. CPAs can help clients structure settlements that minimize the tax impact, such as optimizing asset allocation to mitigate capital gains tax or considering alternative spousal support arrangements that are more tax efficient.

Asset tracing, valuation and division:
In many divorces, there are complex assets to be valued and divided, such as businesses, real estate or retirement accounts. CPAs can trace assets to determine whether they are marital or separate property and provide an accurate valuation for equitable division. For example, if one spouse owns a business that was started before the marriage but grew substantially during the marriage, a thorough valuation must be performed, including both the pre-marital value and the marital appreciation, to ensure fair division. Similarly, real estate owned jointly or inherited property may require detailed analysis to determine its value at the time of divorce.

Evaluating settlement proposals:
CPAs can evaluate the financial implications of settlement proposals, providing clients with insights into the long-term financial impact of various options. While CPAs do not structure the settlements, they can help clients assess whether the proposed settlement aligns with their financial goals and long-term needs. For example, a settlement may include a vacation home. While appealing, a CPA can evaluate the potential financial burden it could place on the client’s cash flow, helping them decide whether the asset is worth keeping.

Immediate financial stabilization:
When a spouse is caught off guard by the divorce, a CPA can play a pivotal role in stabilizing their finances. This includes analyzing liabilities and helping the client meet immediate financial needs. Quick action is crucial to protect assets and ensure that both parties can continue to meet their obligations during the divorce process.

Dividing illiquid assets:
Some assets, such as retirement accounts, stock options or closely held business interests, are illiquid and require careful analysis for proper division. CPAs can assist attorneys in preparing qualified domestic relations orders (QDROs) for retirement plans, ensuring that assets are divided fairly and efficiently. They can also help calculate the tax implications of these illiquid assets and explore options for how best to divide them. This is important because without accurate valuation and understanding of the tax impact, clients may find themselves with fewer assets after tax obligations are taken into account.

Custody arrangements and tax benefits:
Custody arrangements impact tax benefits such as child tax credits and the ability to file as head-of-household. CPAs can provide insight into how different custody arrangements will affect clients’ taxes and advise on the best approach to maximize benefits.

Evaluating tax-efficient settlements:
CPAs can evaluate potential settlement options based on tax efficiency. For example, one spouse may receive pre-tax retirement assets while the other receives taxable investments. By understanding the tax consequences of each asset type, CPAs can guide clients to make choices that minimize their overall tax burden.

Planning for financial stability post-divorce:
Once the divorce is finalized, clients require a comprehensive financial plan. CPAs who also hold qualifications in financial planning — such as the Personal Financial Specialist (PFS) or Certified Financial Planner (CFP®) designations — are better suited to help clients develop a strategy that includes retirement planning, investment strategies and estate planning. For example, if a client receives a lump sum as part of the divorce settlement, a qualified CPA can help invest this money to generate income while planning for long-term financial needs such as retirement or children’s education.

EXAMPLE: THE IMPACT OF MORTGAGE REFINANCING ON DIVORCE SETTLEMENTS
A common issue during divorce is the division of the family home. Consider a couple that purchased their home for $400,000 ten years ago, and the property has appreciated to $800,000. They currently owe $300,000 on their mortgage at a low 2.5% interest rate. If one spouse wants to remain in the home, they would need to refinance the mortgage to cover the original loan balance ($300,000) plus 50% of the equity ($250,000), bringing the total refinancing amount to $550,000. Assuming a new interest rate of 7.5% over 30 years, the new monthly mortgage payment would change from approximately $1,185 to $3,846 — an increase of $2,660 per month. This example demonstrates how rising interest rates and home values can significantly affect the financial feasibility of retaining the family home post-divorce. CPAs should help clients assess the long-term financial impact of these decisions.

ADVANCED CREDENTIALS AND THEIR ROLE IN DIVORCE CASES
Throughout the divorce process, CPAs may collaborate with other professionals to provide comprehensive support. In particular, the following two designations are valuable in divorce scenarios:

Certified Divorce Financial Analyst (CDFA®) is a specialized designation for professionals who focus on divorce financial planning. CDFAs assist with analyzing the financial impact of divorce settlements, projecting future financial needs and preparing reports that help guide attorneys and clients through the divorce process. CPAs may encounter CDFAs hired by attorneys to provide expertise in complex financial matters and should be prepared to support their clients by providing information and analyzing the reports created by CDFAs. Learn more about the CDFA® credential at institutedfa.com.

Personal Financial Specialist (PFS) is a designation that can only be earned by CPAs who have extensive experience and expertise in financial planning. For CPAs interested in providing specialized advice related to retirement planning, tax strategies, investment management and estate planning, the PFS credential can enhance their ability to guide clients through post-divorce financial decisions. Learn more at aicpa-cima.com/pfs.

Divorce involves complex financial decisions that can significantly impact a client’s future. CPAs are in a unique position to provide invaluable support during this challenging time. From assisting with tax efficient settlements to helping clients evaluate long-term financial stability, CPAs can play a critical role in the divorce process.